CHARLESTON – The West Virginia Supreme Court has decided that an insurance company is not subject to a consent judgment against it if it was not a part of the negotiations creating the agreement.

Insurer Penn-America appealed a decision from Wyoming Circuit Court in which the plaintiff, Beecher Osborne, had been granted a summary judgment against Penn-America. The insurance company was ordered by the circuit court to pay Osborne a $1 million consent judgment, but the Supreme Court reversed the decision in a March 1 ruling, directing the circuit court to dismiss the case with prejudice.

On May 27, 2008, Osborne suffered a leg injury while working for H&H Logging Co. on land owned by Heartwood and leased by Allegheny, the opinion stated. He filed his first lawsuit against H&H, as well as Allegheny and Heartwood over allegations of deliberate intent and negligence for failing to maintain the tract of land on which he had been working, respectively. All three defendants denied liability.

According to the Supreme Court’s written decision, at this point “H&H contacted its insurer, Penn-America, and requested a defense for itself as to Mr. Osborne’s deliberate intent claim, but it did not request a defense for Allegheny or Heartwood as to the claims against them. Penn-America determined that the deliberate intent claim against H&H was excluded under its policy, and thus, it informed H&H it would not provide a defense.”

Allegheny’s insurer, Liberty Mutual Insurance, accepted coverage and provided Allegheny and Heartwood a defense. However, they later discovered that the companies’ contract with H&H required H&H to defend them against any suits, and thus they reached out to H&H twice requesting the company or its insurer provide their defense. H&H did not forward the request to Penn-America, and Liberty Mutual continued to provide defense for Allegheny and Heartwood.

Osborne subsequently entered into a pre-trial settlement agreement with Allegheny and Heartwood, in which the two companies “consented to a $1,000,000 judgment for Mr. Osborne’s leg injury, and they agreed to assign to Mr. Osborne any claims they may have had against Penn-America for failing to provide them a defense in the lawsuit. In return, Mr. Osborne covenanted not to execute on the $1,000,000 judgment against Allegheny and Heartwood. Instead, he would collect judgment from Penn-America by asserting his assigned claims,” according to the court’s decision.

Osborne then dismissed his first lawsuit, as per his agreement, and filed a new one against Penn-America, seeking the damages promised in his agreement with Allegheny and Heartwood. Penn-America, however, denied liability and argued that since none of the parties to the first lawsuit had contacted it since its initial coverage denial to H&H, it had no knowledge of the pre-trial settlement negotiation, and therefore was not subject to its terms.

The circuit court, on Dec. 19, 2014, entered summary judgment against Penn-America, finding them liable for the $1 million consent judgment. Upon Penn-America’s appeal, however, the Supreme Court found “that the pre-trial settlement agreement between Mr. Osborne, Allegheny, and Heartwood is unenforceable against Penn-America… the consent judgment is not binding on Penn-America, and the assignment of claims to Mr. Osborne is void.”

In reaching its decision, the court cited its 2008 case Horkulic v. Galloway, in which it determined “A consent or confessed judgment against an insured party is not binding on that party’s insurer in subsequent litigation against the insurer where the insurer was not a party to the proceeding in which the consent or confessed judgment was entered, unless the insurer expressly agreed to be bound by the judgment.”

The court also cited another part of its decision from Horkulic, pointing out “When dealing with consent judgments, courts must ensure that circumstantial guarantees of trustworthiness exist concerning the genuineness of the underlying judgment.”

The written decision then goes on to detail a number of ways that such trustworthiness is lacking in this case, while a number of “symptoms of fraud and collusion are present.” Therefore, reads the decision, “under the facts of this case, we find the assignment of Allegheny and Heartwood’s claims to Mr. Osborne void, and the circuit court erred in failing to grant Penn-America summary judgment.”

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